Opinion: What the rise of dementia may mean for your financial future

The number of Americans living with dementia may nearly triple to 16 million by 2050

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AngieO'Leary

When my characteristically organized father-in-law had bills and financial statements piling up on every surface of his home, my husband and I knew something was amiss.

As it turned out, he was suffering from dementia, the complications of which would eventually take him from us.

Decreased or poor judgment and decision making, especially when it comes to handling money, is one of the early warning signs of dementia. Learning to spot those early signs not only helps families diagnose their loved one, but it also helps mitigate the many financial impacts of the disease.

Sadly, the rate of dementia-related diagnoses is rising sharply. According to the Alzheimer’s Association, the number of Americans living with dementia may nearly triple to 16 million by 2050. Because age is the primary risk factor for Alzheimer’s, baby boomers — the first wave of whom are now in their early 70s — are a driving force behind this trend. And while advanced age is the greatest known risk factor, Alzheimer’s is not a normal part of aging.

Dementia is not a specific disease, but rather an umbrella term that describes a wide range of symptoms associated with a decline in memory or other cognitive skills. Though it comes in many forms, Alzheimer’s is the most common and accounts for 60% to 80% of dementia cases. One in 10 people 65 and older have Alzheimer’s, and one in three over age 85 have the disease. Odds are you have, or will have, some experience with this disease either directly or through a close friend or family member.

The increased prevalence of dementia will clearly have a transformative impact on the health care system. What isn’t as obvious, but is still of critical importance, is the negative financial impact the disease will have on a generation of Americans and their families. Even if dementia hasn’t touched you yet, given the rising prevalence of the disease, it is important to understand and plan for its impact.

Dementia and the true cost of care

In addition to the serious physical and mental effects, a dementia diagnosis is one of the most financially devastating a family can experience. For many families, the implications are only fully quantifiable in hindsight.

From the outset, a dementia diagnosis necessitates services and care that bring about a mountain of expenses. Early on, families tend to step in as caregivers and coordinators, helping with everything from routine activities, like shopping and medical appointments, to daily tasks, like bathing and dressing. This can add to the financial burden in the form of lost wages, career disruptions and out-of-pocket expenses. It’s important to note that the vast majority of family caregivers are women, which means they are likely to feel outsize effects of these specific financial burdens.

Following a dementia diagnosis, people generally live an average of 4.5 years. As the disease advances, the patient needs more care than most family members can handle, eventually requiring professional home and transition care and generally culminating in the need for a residential skilled memory care facility. In fact, most people with dementia spend 40% of their time after diagnosis in such a facility. This kind of care is expensive, and can cost an average of $32,000 annually.

Most of the nonmedical care costs associated with dementia are not covered by Medicare or traditional health insurance. Even for those with supplemental long-term care insurance, these care costs can be significant. For many, they can be so great that they lead to financial ruin.

Planning can make a difference

If you find yourself in the position of caring for a loved one with Alzheimer’s or another form of dementia, you may have to press the reset button on long-held dreams for retirement. Things like travel and the ability to help finance your children and grandchildren’s education may fall by the wayside if the cost of care becomes a significant expense in and leading up to your retirement years.

Planning ahead can make all the difference between effectively managing the financial burden of a dementia diagnosis and sustaining severe financial hardship. This is especially important if there is increased risk of dementia in your family, including hereditary factors and prior injuries.

Families can take steps to mitigate the risk of the costs associated with a dementia diagnosis. Hybrid insurance policies that include a long-term care component as well as some life insurance policies may provide financial relief. But the key is to have the insurance in place before the diagnosis, particularly if there is a family history of dementia, so planning ahead is crucial.

Upon diagnosis, it is important to act swiftly to protect the patient and family from financial missteps, abuse and liability. Planning should include having key legal documents and arrangements — like power of attorney, health care directives and wills — in good order, as well as making sure assets are properly titled and beneficiary designations are current. Consider the benefits of a trust and professional executor services, especially in the absence of a trusted and competent personal executor (generally a family member).

Your financial adviser, if you have one, can help you navigate these tough waters and help manage the risk of financial missteps and fraud. The securities industry now requires advisers to ask all clients for the phone number of a trusted contact, a rule designed to help protect the growing number of vulnerable individuals as the population ages. This trusted family member or close friend is there to review financial statements and transactions on a regular basis and can act as a fail-safe when the adviser suspects fraud or detects a decline in the client’s judgment.

The big picture

If you or a loved one is diagnosed with any form of dementia, the financial stakes are high. Having a ready action plan designed to safely transition financial and legal capacity can help manage the financial implications of an already trying situation. While sacrifices may be necessary, there are ways to manage the cost of care while protecting your family’s financial future.

Angie O’Leary is the head of wealth planning for RBC Wealth Management. RBC Wealth Management does not provide tax or legal advice. All decisions regarding the tax or legal implications of your investments should be made in connection with your independent tax or legal adviser. RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.

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